The Smallest Giant in the Tower Business
Clear Channel Communications is often described as a giant. A behemoth. A thousand-pound gorilla. Since the 1996 Telecom Act loosened media ownership rules, the company has grown more than 30-fold, from 40 radio stations to nearly 1200 in 300 cities. Last year it collected nearly $9 billion in total revenue. But in the PCS tower business, Clear Channel is small potatoes, barely meriting the attention of sector stars like American Tower and SpectraSite. Lately, however, the media mammoth has begun paying closer attention to the tower business, provoking unanswerable questions about what might happen should the gorilla apply its insatiable appetite for growth to this sector.
Clear Channel has nowhere near the number of tower sites nationwide that its competitors in this space have. Where Clear Channel has about 1300 tower sites spread across the country, SpectraSite has more than 7500 towers, and American Tower has about 13,000. Not surprisingly, Clear Channel's revenue from this sector is a fraction of that pulled in by those who are dedicated to it. Clear Channel's director of vertical real estate, Scott Quitadamo, estimates his division took in about $1.6 million in revenue, signing between 100 and 120 leases with wireless operators last year. Meanwhile, Crown Castle International reported $130 million in the second quarter of 2004 alone, and American Tower took in $168 million in the same quarter.
But tower companies can't beat Clear Channel's margins in this business. Because the media company leases space on towers that its radio stations already use for broadcast, there's very little cost involved, so almost all the money brought in from leases is gravy.
“Is there a margin?” Quitadamo said. “I guess it's ‘all.’”
To maintain that margin, he said, Clear Channel keeps its lease rates consistent with competitors but differentiates itself by sparing clients the list of nagging fees that most tower companies apply, such as application fees (which typically cover upfront legal costs and due diligence) and site inspection fees.
“We're not going to fee you to death,” Quitadamo said. “Carriers like that.”
However, tower companies with more plentiful assets may be able to offer volume discounts to carriers. And price isn't the prime factor in carriers' lease-picking decisions anyway. As with any real estate business, the three most important words are, in fact, all the same word.
“It goes back to location,” said Seth Potter, an equity analyst who covers the tower industry for Punk, Ziegel & Co. “If there's a site where a carrier has a choice between site A and site B, and either would work and one was cheaper, clearly they'd go with [the cheaper one].”
Location may not be Clear Channel's strong suit. Its sites weren't placed according to carrier demand; they sit wherever Clear Channel purchased a radio station or a billboard (with particularly high concentrations in Ohio and Texas, for example). And though Clear Channel has 145,000 billboards, most of them aren't attractive sites for wireless carriers, Quitadamo said, for a variety of reasons: They often aren't high enough for wireless carriers (most billboards are less than 50 feet tall; optimal PCS tower sites start at around 70 feet), and their short-term leases are often incompatible with the long-term leases that carriers desire. Of perhaps a dozen billboard sites in Boston, Quitadamo guesses he sold wireless leases on no more than two last year.
However, due to extensive zoning regulations, Potter said, few new towers are being built, potentially increasing the demand for pre-existing sites.
Although Quitadamo refers to 2003 as Clear Channel's first year in the PCS real estate market, it really isn't. The radio stations Clear Channel owns (which add up to about 9% of all the stations in the country) have been selling space on their towers to mobile operators for years. But they weren't organized or proactive about it, letting the business come to them. And each station negotiated its own leases, creating a patchwork quilt for carriers wanting to do business.
“Prices were everywhere,” Quitadamo said. “When AT&T Wireless was out looking for sites and came across a Clear Channel site, they had no idea what to expect.”
Realizing that a centralized approach would be more efficient and more effective, Clear Channel began outsourcing its tower space leasing business in 2001. A year later, the company decided to bring the business in-house, dedicating a three-man staff helmed by a defector from the competition: Quitadamo, an American Tower salesman working Southeastern markets from his office in Atlanta.
Near the end of 2003, Clear Channel signed its first 25-year master lease agreement (MLA) with a major mobile carrier, Verizon Communications. The MLA — common among tower firms — establishes a set of stipulations that apply to every Clear Channel lease Verizon signs so the companies don't have to negotiate scores of details for every lease. Now when Verizon picks a site, Quitadamo negotiates a price, and the MLA spells out the rest. This summer, Nextel signed its own MLA with Clear Channel. A Sprint MLA is nearing completion now, Quitadamo said, and T-Mobile will be targeted next.
How big Clear Channel's footprint could become is somewhat of a mystery. Quitadamo won't take a guess at how many of the company's radio stations and billboards could be milked for more sites. And because Clear Channel continually buys and sells radio stations and other assets, its total available real estate is a “moving target,” he said.
“If I put my sales hat on, I'm looking for as many sites as I can,” he said. “At the same time, I don't drive the acquisition of towers. Unlike tower companies, we don't acquire a site purely for the purpose of leasing space on it.”
What is clear is that Clear Channel is slowly but surely investing more resources in this sector. The company is even starting to cut into those near-100% margins to expand a business that was once just an afterthought. It only recently began limited advertising of its tower real estate, but it plans to do much more.
“Going forward, it's all going to be about marketing,” Quitadamo said. “Getting the word out is going to be much more of an initiative for us.”
|Tower sites||2003 revenue||2003 profit/(loss)||Headcount|
|Clear Channel's tower business||1300||$1.6M||Unknown||3|
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